Property Agent Matters - All New Website Docs... · 2015-03-25 · 1 Property Agent Matters ... the...
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Summer 2011 Property Agent Matters Opening the doors to future prosperity Virtual Reality Is it time to lose the high street office? I hope you have all had a good summer and many of you managed to get away for a couple of weeks and recharge your batteries. The summer months are normally quiet for agents, but is often a time when potential movers are sitting at home with the children, whilst they are on school holidays, bemoaning about the lack of space and logging on to Rightmove (or other similar portals!) to check out their options. This could well explain the increase in activity between September and Christmas. Let’s hope that happens again this year. It is, perhaps, no surprise, therefore, that a lot of new agents starting up have no high street presence at all. They are the new breed of agent, and they are purely virtual. When I talk to my agent clients and ask them what percentage of new leads come from the internet as opposed to footfall, the normal response is about 99% internet. With that sort of statistic, it does make you wonder about the need for offices. Granted, it does show that you mean business by having an office; you look professional; you can showcase the properties in your window, but these come at a price, and I really do question whether it is these things that get you new instructions, or is it your reputation for good service? Maybe it is based on the number of signboards up in that area (certainly the number of “Sold” signs helps!), but I am not convinced that the office has much, if anything, to do with it. Of course, it is much easier for a new agent to set up from scratch without a high street presence, it takes a much braver agent to come away from the high street, when competitors may try to use it to their advantage. However, with those new virtual agents building up their reputation for good quality service, and with a lower cost base, they can be keener on commission rates. As a result, it would be no surprise if they increase their market share, which may force agents with offices to rethink their strategy. I do believe that offices will be in the minority in, perhaps, ten years time; so if you haven’t thought about it yet, perhaps you should. If you are thinking about opening another office in a different area, would the money be better spent taking out advertising hoardings confirming you service that area? At least that way you are not tied into a lease, or commitment to incur capital costs to fit out the office. Virtual is already reality; you really need to plan to avoid being left behind. It can also be a reflective time for agents. Sunbathing with a Pina Colada in hand, thinking about their business and the ways of both reducing costs and increasing profits. Other than staff, what would be one of your biggest costs? More than likely the answer is property. Not just the rent (or mortgage interest) but light and heat, rates, repairs and maintenance; the list goes on.
Transcript of Property Agent Matters - All New Website Docs... · 2015-03-25 · 1 Property Agent Matters ... the...
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1 Property Agent MattersOpening the doors to future prosperity
Virtual Reality Is it time to lose the high street office?I hope you have all had a good summer and many of you managed to get away for a couple of weeks andrecharge your batteries. The summer months are normally quiet for agents, but is often a time when potentialmovers are sitting at home with the children, whilst they are on school holidays, bemoaning about the lack ofspace and logging on to Rightmove (or other similar portals!) to check out their options. This could wellexplain the increase in activity between September and Christmas. Let’s hope that happens again this year.
It is, perhaps, no surprise, therefore, that a lotof new agents starting up have no high streetpresence at all. They are the new breed ofagent, and they are purely virtual.
When I talk to my agent clients and ask themwhat percentage of new leads come from theinternet as opposed to footfall, the normalresponse is about 99% internet. With thatsort of statistic, it does make you wonderabout the need for offices.
Granted, it does show that you mean businessby having an office; you look professional; youcan showcase the properties in your window,but these come at a price, and I really doquestion whether it is these things that getyou new instructions, or is it your reputationfor good service? Maybe it is based on thenumber of signboards up in that area(certainly the number of “Sold” signs helps!),but I am not convinced that the office hasmuch, if anything, to do with it.
Of course, it is much easier for a new agent toset up from scratch without a high streetpresence, it takes a much braver agent tocome away from the high street, whencompetitors may try to use it to theiradvantage. However, with those new virtualagents building up their reputation for goodquality service, and with a lower cost base,they can be keener on commission rates. Asa result, it would be no surprise if theyincrease their market share, which may forceagents with offices to rethink their strategy.
I do believe that offices will be in the minorityin, perhaps, ten years time; so if you haven’tthought about it yet, perhaps you should. Ifyou are thinking about opening another officein a different area, would the money be betterspent taking out advertising hoardingsconfirming you service that area? At least thatway you are not tied into a lease, orcommitment to incur capital costs to fit outthe office.
Virtual is already reality; you really need toplan to avoid being left behind.
It can also be a reflective time for agents.Sunbathing with a Pina Colada in hand,thinking about their business and the ways ofboth reducing costs and increasing profits.
Other than staff, what would be one of yourbiggest costs? More than likely the answer isproperty. Not just the rent (or mortgageinterest) but light and heat, rates, repairs andmaintenance; the list goes on.
This release has been prepared as a guide to topics of current financial business interests. We strongly recommend you take professional advice beforemaking decisions on matters discussed here. No responsibility for any loss to any person acting as a result of the material can be accepted by us.
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Registered as auditors by the Institute of Chartered Accountants in England & Wales.Hazlewoods LLP is authorised & regulated by the Financial Services Authority.
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Nick HainesPartner and Head of TeamAffiliate Member of NAEAt: 01242 237661e: [email protected]
Windsor House, Bayshill Road, Cheltenham GL50 3ATt: 01242 237661 f: 01242 584263
www.hazlewoods.co.uk
The Property Ownership ConundrumAs people involved in the property marketyou may have already invested in property, orare currently considering it. One of thequestions I get asked quite a lot is, “Howshould I hold the property - in a company,personally, or something else?”
Unfortunately, my answer is always the same -it depends! There really is no “one size fits all”answer and there needs to be some numbercrunching carried out to decide on the mosttax efficient route.
Let’s consider the situation on a disposal for again of £100,000. If you hold it personally, thesituation is relatively straightforward. Ignoringannual exemptions and assuming you are ahigher rate taxpayer, any gain is taxed at 28%.So, on my £100,000 gain, the individual is leftwith £72,000.
What about for a company? Well, if weassume the company pays the small rate of20%, this leaves £80,000 in the company. Thismay, at first glance, seem a better result thanpersonal ownership, but we are notcomparing like with like. With personalownership, the cash rests with the individual.With company ownership, the cash is lockedin the company, unless it is distributed.
There are two ways to distribute the cash taxefficiently, dividends or through a capitaldistribution on liquidation.
With dividends, a higher rate taxpayer will payan effective rate of 25%. If their taxableincome exceeds £150,000, the effective ratebecomes 36.1%. Table A below shows thenet cash position depending on the individual’smarginal rate of tax.
As can be seen, personal ownership providesthe best result. What about distributionthrough a liquidation of the company? In thatscenario, it is hard to see the company
qualifying for Entrepreneurs’ Relief as it isunlikely to meet the qualifying conditions. Thisleaves us with the situation that, either basicrate capital gains tax is paid at 18% (unlikelyunless numerous shareholders) or, morerealistically, the higher rate of 28% is payable.The results are shown in Table B.
Again, personal ownership comes out on top.
This is not, however, the end of the story. Ifdebt is being taken on to purchase theproperty, you need to consider the repaymentof that debt. The capital is not tax deductibleso the more post tax cash you have available,the quicker you can repay the debt.
It is, perhaps, not surprising that, given theincome tax rates of 20%, 40%, 60% (between£100,000 and £114,950 due to the erosion ofpersonal allowances) and 50%, thecorporation tax rate for small companies of20% represents a much cheaper option andthe ability to repay debt far sooner from thesame level of rental income.
Still, we haven’t reached the end of the story,what about pensions? Of course, there aresome restrictions on what pensions can hold(residential property is not allowed), butcommercial property can be held.
The benefit of the pension holding property isthat any income it receives and capital gains itmakes are within a tax free environment,which is excellent news and represents farbetter tax efficiency than personal or corporateownership. However, there are drawbacks.
Firstly, debt can only be raised equivalent to50% of the pension’s value. You may be ableto raise more personally or in the company.
Secondly, the cash is still locked in the pension.You can obtain a 25% tax free lump sum, butthe remaining 75% would be subject to
Income Tax at one of the rates referred toabove. This gives effective tax rates of 15%,30%, 45% and 37.5%. Compared to theCapital Gains Tax rate, only the 15% isfavourable, but compared to income tax rates,the pension offers some savings.
I hate confusing things, I would far rather beable to give you a simple answer but eachsituation needs to be considered to assess thebest structure. Despite HMRC’s slogan of“tax doesn’t have to be taxing”, nothing,unfortunately, could be further from the truthwith property ownership!
For more information, please get in touchusing the contact details below.
Beverly RobertsTax Managert: 01242 237661e: [email protected]
Gain £100,000 £100,000 £100,000Corporation Tax £0 (£20,000) (£20,000)Income Tax (£20,000) (£28,889)Capital Gains Tax (£28,000) £0 £0
Cash in hand £72,000 £60,000 £51,111
Gain £100,000 £100,000 £100,000Corporation Tax £0 (£20,000) (£20,000)Capital Gains Tax (£28,000) (£14,400) (£22,400)
Cash in hand £72,000 £65,600 £57,600
Table A Personal Company and 25% Company and 36.1%
Table B Personal Company and 18% Company and 28%
